[AR] Yet more investment talk, on a rocket list! (was Re: Re: VSS Unity powered flight)
- From: "Perry E. Metzger" <perry@xxxxxxxxxxxx>
- To: William Claybaugh <wclaybaugh2@xxxxxxxxx>, arocket@xxxxxxxxxxxxx
- Date: Sun, 8 Apr 2018 18:56:23 -0400
On Sun, 8 Apr 2018 18:28:11 -0400 "Perry E. Metzger"
<perry@xxxxxxxxxxxx> wrote:
though that's ignoring tax effects, which is probably
only possible for an insurance company.
And of course also for pension funds, university endowments, and the
like. I realized my mistake almost as soon as I hit send.
In any case, the general import is this:
Usually, the risk free rate of return on investment isn't very
different from the growth rate for the economy. To get better, you
need to invest in riskier things, like equities, but even they don't
earn particularly astonishing yields.
And thus, in the hunt for ever better returns, people turn to
investment in various forms of speculative investment, including
venture capital and private equity, and those sorts of investment
vehicles are places where people are used to most of their bets not
paying off at all or losing their entire investment. They do that
because a minority of bets (say, Andy Bechtolsheim's early investment
in Google) pay off so spectacularly that they much more than make up
for the ones that get wiped out entirely.
So, not surprisingly, in recent years, some investors have started
putting money in launch systems.
Will Virgin Galactic ever pay off the money the investors put in?
Probably not, but that would have been the guess even on the day
that the original funding round was closed, as most such investments
don't pay off.
Were the investors foolish to try? Probably not so foolish. If I had a
large enough venture fund to dispose of, and the business plan looked
good enough, I might have been tempted to put a bit in just to see
what happened, even knowing that the odds weren't good. The odds are
_never_ good, after all, and you're looking to make many, many bets.
And it does look like at least some of the bets on space will pay off.
SpaceX has been invested in by Founders Fund, Google, Draper Fisher
Jurvetson, Capricorn, and others. It isn't certain that they'll make
their money back, but unlike ten years ago when some of the money
went in, I think there's a pretty high probability at this point that
they're going to have pretty high return, at least if SpaceX can
avoid losing too much money on BFR development.
If they just run the Falcon 9 launch business at 20 or 30 launches a
year, they're probably doing reasonably well as a going concern, and
if they can grow the business at a reasonable pace, they'll be doing
nicely. If they can actually pull off BFR, I bet the early investors
will be quite happy indeed. (If BFR drags the company down, there
will be many sad faces, but the venture business is about winning
spectacularly to pay for all the total losses, so I doubt the
investors are against BFR, since it's the sort of bet they love.)
Perry
--
Perry E. Metzger perry@xxxxxxxxxxxx
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